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Follow the leader

How secure is the future of your organisation? The chances are, not as secure as you might think...

14 Mar 2016

It is generally agreed that succession planning is the number one challenge facing businesses worldwide. Here Odgers Berndtson’s Kit Bingham answers the fundamental questions that all boards should be asking.

Do we promote internally or externally?

In a perfect world, a chief executive hands the reins to a knowledgeable, experienced and trusted lieutenant who has been developed for the role. But life is seldom perfect. The chances are that you won’t have a board of ready-and-waiting candidates who can seamlessly fill vacant positions.

The most important question, therefore, is whether to promote internally or to search outside the business. Whichever you choose, it is vital to determine what the organisation needs from its next chief executive. Consider the company’s strategy and the skills needed to deliver it, challenges to face over the short and medium term, and whether the experience exists in the leadership team to meet and overcome those challenges.

Much is determined by the state of the business. A well-performing organisation in a ‘steady state’ market may be better placed to appoint from within, but if change is a priority then appointing a chief executive from outside can reassure staff shareholders and stakeholders and send a clear signal that a shake-up is coming.

How can we establish external availability without commissioning a full search?

We conduct this without approaching potential candidates or revealing client details to reduce the risk of leaks or unhelpful chatter. A mapping project is great way of gaining an early insight into who is available in the market and the skills and experience that they can bring to your business. It should exist as an ongoing ‘living’ document that is maintained and updated as part of an overall long-term succession plan.

Do we involve the chief executive?

A confident Chief Executive should recognise that succession planning is one of their key responsibilities, and one that requires their engagement and input.

Conversely, more insecure types may fear that talk of succession undermines their position or will hasten their own departure.

Our advice? Make it a continuous conversation within the business so that discussions can take place openly and without any heat. Chairmen should engage in robust and frank discussion with chief executives about their strengths and weaknesses, what the company may require in the future, strategic direction and pace of expected change and the skills needed at the head of the company.

How do we ensure we have a strong internal contender?

Allow any potential candidates the necessary development opportunities to prepare them for the top job. An invitation on to the board as an executive chairman, for example, can prove beneficial in giving access to all aspects of the business and the realities of working with and through a board.

Other ways in which to stretch the horizons and abilities of your future chief executives include regular exposure to the board, formalised one-to-one mentoring with an existing non-executive director or being given a project outside their current executive responsibilities such as leading the integration of an acquisition or overseeing an IT overhaul. Familiarisation is vital in maximising the chances of a new chief executive being successful in the role.

Can we retain internal candidates if they are not appointed?

While it may not be possible to retain an unsuccessful candidate, a well-planned and executed succession helps maximise the chances of retaining valued talent. Most of us respond well to being treated fairly and employees are far more likely to stay in an organisation where they have had the opportunities for development, every chance to succeed and where any final judgement has been made based on thorough analysis. Remember, by maintaining regular communication between the board and internal candidates your succession plan will be more effective.

What happens if a succession plan falls apart?

An unexpected dip in performance, a takeover bid, an accounting oversight or a decision by a chief executive to accept another appointment elsewhere - any of these can derail even the most seamless and perfectly planned succession plan.

Any good plan involves regularly asking the question: if we need a new chief executive tomorrow what would we do? The requirement to respond to the unexpected underscores the need to have a permanently ‘live’ succession plan involving internal and external candidates. At any point the board should have a clear view of candidate strength and their stage of development - this is where Odgers Berndtson’s mapping project can be used to illustrate how internal candidates compare to those available externally. The bottom line: expect the unexpected.

A combination of good contingency planning and good succession planning maximises your chances of success.

What role should the nominations committee play?

Put simply, succession planning for the Chief Executive is a full board decision. A nominations committee should take the lead in establishing a detailed and thorough process of benchmarking, mapping, assessment and development.

By leading the development of a succession plan, keeping it live and reporting back to the full board the nominations committee is central to success.

What now?

Your succession planning should start now. A thought-through plan may evolve over several years but it should ideally begin on the first day of a new chief executive’s tenure. Odgers Berndtson can help. Our succession planning model integrates an upfront analysis of the business and leadership challenges an organisation will face over the longer term, an objective assessment of each internal succession candidate that gives direction on how they can develop their leadership potential, and a transparent and fair process with clear and concise communication. Having the right leaders in place is the cornerstone of every organisation’s success. Let that process start today.